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HOCKLEY v. SHAN ENTERPRISES

August 5, 1998

JESSICA A. HOCKLEY, A MINOR BY HER GUARDIAN AD LITEM, WILLIAM HOCKLEY, AND WILLIAM HOCKLEY AND MARGARET HOCKLEY, INDIVIDUALLY
v.
SHAN ENTERPRISES LIMITED PARTNERSHIP d/b/a COMFORT INN AND PANKAJ SHETH, Defendants/Third Party Plaintiffs v. LIEBER RICH AND SONS, INC., MIDDLE DEPARTMENT INSPECTION AGENCY, INC., HOLBY VALVE COMPANY, INC., AND RAYPAK, INC., T/A RAYPAK, Third Party Defendants



The opinion of the court was delivered by: BROTMAN

OPINION ON MOTION

 BROTMAN, DISTRICT JUDGE:

 Presently before the Court is third-party defendant Raypak, Inc.'s ("Raypak") Motion for Sanctions against defendant Shan Enterprises Limited Partnership ("Shan") pursuant to Fed. R. Civ. P. 11 ("Rule 11") and 28 U.S.C. § 1927. For the reasons discussed below, the Motion is denied.

 I. FACTS AND PROCEDURAL BACKGROUND

 On April 22, 1995, Jessica Hockley was a guest in Room 716 in the Comfort Inn hotel in Absecon, New Jersey. She sustained second and third-degree scald burns while using the shower in her room. Defendant/Third-Party Plaintiff Shan owns and operates the hotel.

 On July 5, 1996, counsel for Ms. Hockley filed an amended complaint against Shan alleging that it had failed to regulate the temperature of the hot water supplied to the shower in her hotel room or to warn guests of the potential dangers posed by the water temperature. On August 23, 1996, Shan filed a third-party complaint against a number of parties, including Raypak. This complaint alleged that Raypak had designed, manufactured, sold, and distributed defective boilers that had been responsible for Ms. Hockley's injuries.

 On February 2, 1998, United States Magistrate Judge Joel B. Rosen executed an Order Approving Settlement. On February 6, 1998, following the reported settlement by the parties, this Court issued an Order of Dismissal, dismissing the action without costs and without prejudice. On March 2, 1998, a Stipulation of Dismissal with Prejudice as to Raypak, Inc. was filed, dismissing Shan's claims against Raypak with prejudice. On March 7, 1998, Raypak filed a motion with this court requesting sanctions against Shan under Rule 11 and 28 U.S.C. § 1927. On March 25, 1998, Raypak withdrew its motion for sanctions because it had failed to comply with the twenty-one day "safe harbor" notice period required by Rule 11. On April 16, 1998, Raypak refiled its motion, having provided Shan with the requisite notice.

 II. DISCUSSION

 Raypak contends that Rule 11 sanctions should be imposed against Shan because it failed to conduct a reasonable inquiry into Raypak's culpability before filing its third-party action. Raypak also seeks attorneys' fees pursuant to 28 U.S.C. § 1927 for Shan's "vexatious and inexcusable delay in dismissing the action against Raypak."

 Shan counters that its pre-suit investigation was reasonable and revealed an adequate basis for liability against Raypak. In addition, with respect to Raypak's request for sanctions under 28 U.S.C. § 1927, Shan contends that its conduct was not in "bad faith."

 More importantly, Shan advances two arguments that Raypak's Rule 11 motion is procedurally barred. First, it contends that Raypak's late filing of its Rule 11 motion did not comply with Local Rule 11.3, which requires that Rule 11 motions be filed prior to the entry of final judgment. Second, it contends that, since it withdrew its claim before Raypak moved for sanctions, Raypak's motion is barred by the "safe harbor" provision of Rule 11.

 A. SANCTIONS UNDER RULE 11

 Since its adoption in 1937, Rule 11 has undergone several significant permutations. Throughout its history, Rule 11 has required the signature of an attorney submitting pleadings to the court. *fn1" It has also always provided for sanctions against attorneys who fail to comply with its requirements. The basic provisions of Rule 11 have remained the same, but the precise conduct required of attorneys by the rule and the manner of implementing the rule's provisions have changed over time.

 Rule 11 was amended in 1983 and again in 1993. *fn2" During the intervening period, the Third Circuit in 1988 adopted a supervisory rule, discussed infra, that affected the application of the 1983 rule. The adoption of this supervisory rule led to the implementation of identical rules governing United States District Courts for the District of New Jersey, Local Rule ("L. Civ. R.") 11.3 and General Rule ("G.R.") 12.L. A brief overview of the evolutionary developments of Rule 11 is instructive.

 1. Rule 11 -- Pre-1993

 Throughout its existence, Rule 11 has required attorneys to sign all papers submitted to the court. In its 1937 incarnation, an attorney's signature certified that to the best of that attorney's "knowledge, information, and belief there is good ground to support [the pleading]; and that it is not interposed for delay." Fed. R. Civ. P. 11 Advisory Committee's Notes (1983 Amendments) (Foundation Press 1992). The 1937 rule, however, was not effective in deterring abuses of the judicial system. Fed. R. Civ. P. 11 Advisory Committee Notes (1983 Amendments) at 85 (West 1998).

 Rule 11 was amended for the first time in 1983. The 1983 amendment added that an attorney's signature on a paper indicated that the paper was "well grounded in fact" to the best of his or her knowledge, formed after a reasonable inquiry, and was not being submitted for any improper purpose. Fed. R. Civ. P. 11 (West 1991). The 1983 rule also provided that "the court . . . shall impose ...


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